Ghana Banks, Businesses Anxiously Await Decision on New Policy Rate

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Banks and businesses in Ghana are anxiously expecting a decision on the country’s policy rate as the Bank of Ghana’s Monetary Policy Committee (MPC) is set to announce a new rate on Monday September 25, 2017.

The MPC begun its economic review meeting on Friday 22 September 2017 and will climax it on Monday September 25 with a decision on the policy rate for commercial banks to comply with.

It is also expected to outline the central bank’s plan for the economy for the rest of 2017.

Ahead of the announcement on Monday, some industry players and analysts have been sharing their expectations.

The less than satisfactory performance of the non-oil sector in the first quarter, for example, means growth remains top on the agenda, says Benjamin Amoah-Adjei, a Research Analyst at FirstBanc, an investment bank, expects at least, a 100-basis point reduction in the 21 percent policy rate today.

“Even though inflation has not showed much improvement, it is still considerably lower than where we were at September last year or even at the beginning of the year,” he said. “So, there is still a strong case for them to reduce the policy rate.”

Growth has remained subdued. For the first quarter, even though growth came in at 6.3 percent, you would have noticed that non-oil growth was actually 3.9 percent, which is lower than 2016 where it was 4.9 percent.

Inflation also has inched up slightly but is still fairly stable. So, the real concern is for growth and not for inflation, and if you look at it from that perspective, it supports the case for the rate cut rather than maintaining or increasing it. We think it should come down to 20 or 19 percent,” he told footprint2africa in Accra.

Similarly, Henry Oroh, Managing Director of Zenith Bank, disclosed that reducing the rate further will drive production and boost economic growth.

“When you bring down interest rates, you encourage real investments. Investment accounts and savings in money markets become unattractive, then people will be putting their monies into the real sector. So what that does is to create an aggregate economy where production and employment go up.”

“So a low interest rate is good for the economy, so if the MPC rate comes down a little further, anytime soon, it will be a good thing for the real sector,” he noted.

Meanwhile, those who see the policy rate being kept at 21 percent cite exchange rate volatility, rising inflation, unstable commodity and oil prices, among others as reasons.

Dr. Richmond Atuahene, a Lecturer at the Ghana National Banking College and CEO of Universal Capital Management, said there is the need for the central bank to keep its policy rate tight as key benchmark indicators are not favourable.

“The indicators are not very favourable because of two key issues: inflation inched up in August; and oil prices on the global market shot up a little after the hurricane in United States of America.

The cedi has also been depreciating since the last MPC meeting and Bank of Ghana would prefer holding it tight to be able to control inflation and at the same time, making sure that there is stability in the currency,” he opined.

The policy rate is the primary rate at which commercial banks borrow for onward lending to customers.

Since the beginning of the year, the MPC has reduced the rate on three occasions, representing 450 basis points. It was reduced from 25.5 percent to 21 percent during the committee’s last meeting in July.

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